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Canadian Cannabis Stocks Trading At A Discount: (CGC, OGI, And TLRY)



The cannabis sector has been on a roller coaster as the coronavirus pandemic continues to take a toll on key segments of the multi-billion industries. The likes of Canopy Growth Corp (NYSE:CGC), OrganiGram Holdings Inc. (NASDAQ:OGI) and Tilray Inc. (NASDAQ: TLRY) are edging higher as investors react to improving fundamentals in the nascent industry.

Canopy Growth Acreage Holdings Acquisitions

Canopy Growth, a juggernaut in the cannabis sector, has bounced back after imploding to one-year lows in the wake of the COVID-19-triggered market crash. The stock is up by more than 10% from March lows at the back of improving fundamentals.

A confirmation that the company is poised to expand its footprint, in the U.S, in pursuit of opportunities for growth is the latest development affirming the company’s growth metrics and long-term prospects. The company has reached an agreement pursuant of which it will acquire all the issued and outstanding securities of Acreage Holdings.

Under the terms of the agreement, Canopy Growth is to pay Acreage $37.5 million in up-front cash. It is also to lend Acreage $100 million, funds that should allow it to expand its business, and strengthen is liquidity levels.

Under the revised terms, Canopy Growth could end up paying $843 million for the U.S Cannabis heavyweight, down from $3.4 billion when the deal was announced last year, April. The transaction is, however, dependent on the U.S legalizing Cannabis on the federal level.

If successful, the acquisition will allow Canopy Growth to gain a foothold in the U.S cannabis market. Acreage is to provide Canopy Growth with an advantage over its peers, given it is already selling Canopy brands UN the U.S.

OrganiGram Holdings Restructuring Drive

OrganiGram Holdings continues to reel from the effects of COVID-19 disruptions, which explain why a bounce back from one-year lows has continued to face hurdles. The stock has come under pressure in recent weeks after rallying following the March 23 market crash.

The company has already warned that more bad news could be on the way, continuing to weigh on the stock’s sentiments in the market. The Moncton-based cannabis company has already confirmed plans to lay off close to 220 employees in response to the COVID-19 fallout. The layoffs will affect a quarter of the company’s total workforce.

In its defense, the Canadian cannabis powerhouse maintains the layoffs will lead to a leaner, flexible, and better-prepared workforce able to align production capacity to current market conditions. The result of the layoffs could be a decline in net revenue in the third quarter. The company is also staring at write-downs on inventory at its Moncton facility.

The restructuring drive will also result in the company cultivating less cannabis shortly in response to the challenging market conditions. Instead, the company intends to focus on new strains of plants able to meet emerging consumer demand.

OrganiGram joins a handful of Canadian cannabis players that have embarked on restructuring drive in response to the challenging environment fuelled by COVID-19. Canopy Growth and Aurora Cannabis have already carried out write-downs, restructurings, and layoffs to stay afloat in the highly competitive industry.

Tilray To Breakeven Soon

Tilray sentiments have shown signs of improvements in recent weeks after a roller coaster year that saw the company plunge deeper into losses. The stock has bounced back from one-year lows at the back of improving fundamentals.

While the company did generate a net loss of $321 million in 2019, it bordered on breakeven according to 15 pharmaceutical analysts’ estimates. Given the current market conditions, the company should post a net loss in 2020 before becoming profitable in 2021

The stock has been on an upward momentum after underperforming its peers in the first quarter. Renewed investor interest comes at the back of improving fundamentals. For starters, the company has secured a third EU GMP certification paving the way for it to enhance its operations in Europe.

In addition to international growth, Tilray is also looking to grow its domestic business banking on Canada’s recreational business and the hemp business. The company has been growing its product line to take advantage of Canada’s recreational and medicinal markets. Likewise, revenues are expected to increase by 42.5% in 2020 to $238 million and by 55.2% in 2021 to 369.4 million.

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